Boeing receives a major lift from new satellite contract
Boeing Co.’s satellite-making complex in El Segundo got a much-needed boost last week when it won a U.S. government contract potentially worth $1.2 billion.
The NASA contract, though not huge by industry standards, marked a major milestone for a company recovering from a $1-billion debacle that led to 3,000 job cuts.
“This big boat has turned,” said Howard Chambers, the former head of Boeing’s C-17 military transport plane program in Long Beach who two years ago was tapped to resurrect the satellite business.
Once the world’s largest satellite maker, Boeing began scaling back its El Segundo operations four years ago after technical glitches led to delays and expensive repairs to its satellites. At the same time, the commercial satellite market shrank, and the company took $1.1 billion in pretax charges to its earnings in 2003.
In its heyday in the 1990s, Boeing employed more than 10,000 engineers in El Segundo. The workforce was reduced by nearly half as the backlog of orders fell from more than 50 to 14 by 2005.
Now, Boeing is looking forward to what could be its busiest year in a decade. Four Boeing satellites were launched in 2007, up from two in 2004, and eight are slated for takeoff in 2008. The backlog of orders is 27; each satellite can take as many as 18 months to build and cost about $400 million.
“It’s been a good year, but next year will be even better,” Chambers said, adding that the company was vying for new contracts potentially worth $18 billion.
Boeing beat out Northrop Grumman Corp. for the NASA contract, which is for up to four tracking and data relay satellites. They allow the space agency to communicate with the space shuttle and other spacecraft.
The contract “is indicative of a positive change at Boeing’s satellite manufacturing business,” said Howard Rubel, an aerospace analyst with Jefferies & Co. “The unit had struggled with development and product reliability issues, generating substantial losses and missed business opportunities.”
Among the biggest upcoming competitions: the rights to build the Pentagon’s next-generation space-based communication network, known as the transformational satellite communications system, or TSAT. That contract, which might be awarded in spring, could be worth $12 billion initially, potentially rising to $25 billion, though analysts expect Congress to scale back the project. Boeing is competing against Lockheed Martin Corp., the nation’s largest defense company, for the contract.
Since Chambers took over the business in El Segundo, the massive satellite-making factory, which looked eerily empty just a few years ago, has begun to hum. Some work is done in the open but classified government projects are carried out in secret behind five-story-high curtains.
Chamber said the quality-control problems that beset the company had been resolved.
“The space business is unforgiving. If there is a problem, you have to stop work and tear it apart. And it has to work the first time you turn it on because we can’t send someone to fix it,” Chambers said. “We had a number of programmatic issues that were festering. My role was to calm things down.”
Among his first tasks was to standardize processes for making satellites, which were being built like custom homes, each with its own set of tools, parts and paperwork. Obtaining the simplest parts could take hours or days because they had to be ordered individually. Now, many of the common parts are available at a supply shed accessible to anyone on the factory floor.
And engineers and mechanics are working more closely. In the past, engineers designed a satellite and walked way, expecting mechanics to trouble-shoot design problems.
Increased collaboration has led to a 68% drop in engineering changes, Boeing said, and engineering work being completed on time rose 43%.
“Quality improvements have helped Boeing regain its reputation,” said Marco Caceres, a space analyst for Teal Group Corp. “I don’t think Boeing is looked as a low-quality maker anymore.”
Morale, which had sunk with the job cuts and dismal prospects, is on the upswing, the company said, and for the first time employees will be given year-end bonuses averaging about 7% of their annual salaries.
Chambers said Boeing had tried a variety of ways to boost employees’ spirits, including throwing pizza parties and recognizing top performers, but “there is no better way to improve morale than winning new work.”
--
